Bumpy ride for Blair

THE LABOUR Party conference dramatically demonstrated the extent to which Tony Blair's famous "Project" has failed.

The idea behind New Labour, let's remember, was to transform the party into a version of the US Democrats-a second bosses' party no longer tied to the working-class movement.

Yet last week the government, battered by the fuel crisis and trailing the Tories in the opinion polls, tried to make the party conference a rallying point. It could only do so by seeking to persuade its core supporters-still largely drawn from the labour movement-that its aims remain those of Old Labour.

So Blair, in his speech on Tuesday last week, attacked the Tories for playing the race card and tried to play up his government's reforming record. Jonathan Freedland, writing in the Guardian, noted "the subliminal quoting of Nye Bevan and John Smith by both Blair and Gordon Brown". The Financial Times complained the government's "modernising message has been couched in distinctly Old Labour language".

Blair also sought to apologise for his government's arrogance and to admit that it had made mistakes. Labour activists have experienced this arrogance first-hand, notably in the attempted stitch-ups in Wales and London.

Wheeling on Nelson Mandela to finish the conference off was a transparent attempt to reassure these activists that they and their leaders are still engaged in the struggle against injustice that brought most of them into politics in the first place.

Despite these efforts, the party leadership was defeated in the pensions debate and only averted a further humiliation over asylum seekers' vouchers by promising a policy review.

But the government's response to these setbacks indicates that its shift was purely symbolic.

Take the most important issue, that of pensions. Restoring the link between increases in the state pension and in earnings would be enormously popular both in the labour movement and more broadly. Even considerations of the narrowest political expediency would seem to dictate such a concession.

Yet both Blair and Brown were quick to make it clear that they will ignore the conference vote demanding the link is reinstated. This reflects the fact that Brown is strongly committed to means testing.

He claimed last week that his means tested Minimum Income Guarantee for the poorest pensioners meant putting "the abolition of pensioner poverty first". Yet the government's own figures show poverty has grown among pensioners under New Labour.

Blair might be tempted to ditch this policy for electoral reasons. But he cannot afford the confrontation with Brown that this would involve. Despite the conflicts between Blair and Brown and their respective entourages, both remember how badly the Tory government was destabilised in the late 1980s by the conflict between Thatcher and her chancellor, Nigel Lawson.

But there's more to it than that. Means testing is a logical consequence of the neo-liberal economics that New Labour inherited from the Tories. The traditional social democratic remedy for poverty was generous universal benefits-for example, a high state pension-backed up by direct taxation. This mainly uses income tax to finance these benefits by redistributing money from the rich to the poor.

This is the approach defended by Barbara Castle and John Edmonds in last week's pensions debate. But the Tories under Thatcher reversed the balance of taxation.

They cut income tax, which hits the rich, and raised indirect taxes like VAT, which affect the poor much more severely. This policy is now being imposed globally by the International Monetary Fund and the World Bank.

New Labour has pursued the same approach. Blair and Brown have defended high fuel duty-another indirect tax-these past few weeks on the grounds that otherwise public spending would have to be cut. They have also boasted about how low income and corporation tax are in Britain.

But with direct taxation so low, the only way left to help the poor-albeit a grossly inadequate one-is through means tested benefits. So Blair and Brown are trapped in an increasingly unpopular policy by their acceptance of Thatcherite economics.

What this means for the future of the government is hard to tell. The opinion polls are putting Labour ahead of the Tories again. The experts are beginning to speculate whether Labour's poll collapse after the fuel crisis was just a blip.

Maybe so. But Labour's fall in the polls a fortnight ago was the sharpest on record. At the very least the helter-skelter in its popular standing indicates how fragile support for New Labour is. Prepare for a bumpy ride ahead.

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